The news of Tesla (TSLA) laying the groundwork for its second stock split in two years has made analysts and investors optimistic, as shares rallied 8% higher on Monday following the news.
According to Wedbush Securities Managing Director Dan Ives, the EV maker is headed down the right path.
“Tesla right now is in a massive position of strength in terms of where they’re heading from a manufacturing perspective, in terms of Berlin, as well as Austin and overall demand,” Ives said on Yahoo Finance Live (video above), later adding: “They have that high-class problem of a four-digit stock. And I think it’s something where you could always have the debate, but a stock split is a smart strategic move for Tesla, just like it was for Amazon, just like it was for Google, as well as for Apple.”
A stock split would change the price per share of Tesla’s stock but not the overall value of those holdings.
A recently Tesla regulatory filing showed the EV manufacture plans to request stockholder approval at its upcoming annual meeting to increase the number of authorized shares of common stock as a way to “enable a stock split.”
‘It’s really Tesla’s world and everyone else paying rent’
In early August 2020, Tesla announced a five-for-one stock spilt that sent the share price to a record high of $2,000. Following the stock split, the price per share was reset to around $460.
Tesla shares dipped earlier this month after CEO Elon Musk tweeted that the company was facing inflationary pressures. The stock has since rebounded to over $1,000 per share.
“You don’t buy it because of a stock split,” Ives said. “You buy it because fundamentally where you think it’s gonna go, but the stock split is gonna be something that is a catalyst. It’s been rumored for the last four or five months. And I think it was smart to get out there.”
Tesla’s board of directors has approved the management proposal but not yet approved the actual stock split, according to the filing.
Ives believes the timing of the stock split announcement is “bullish” following Tesla’s grand opening in Berlin and the upcoming production factory in Austin, Texas. CEO Elon Musk opened Tesla’s first European factory last week in Germany that will employ 12,000 people and produce 500,000 vehicles a year.
“[A] company that’s gonna do their second split in two years is not doing it because they’re in a position of weakness,” Ives said. “I think it shows position of strength, confidence.”
And as the company goes through Q1, he added, “you’re going to see more and more momentum, especially from a manufacturing perspective. You got the April 7th barbecue in Austin where that cuts the ribbon there. And despite all the noise, despite all the competition right now, Tesla, at least in EV land, it’s really Tesla’s world and everyone else paying rent.”
Dani Romero is a reporter for Yahoo Finance. Follow her on Twitter: @daniromerotv